The mentioned 'helicopter drop' issues should be juxtaposed next to current quantitative easing programs: If recipients do expect future calamity and save, aren't the banks recapitalized anyway? Quantitative easing should be directed to the tax-payers first, since they will eventually foot the bill in the end. It is a far superior program to the present QE programs.

Yes, but our present structure makes 'heli-money' a problematic policy mechanism due to its lack of a foundation in policy-structure, being yet today built entirely upon a debt-based money system paradigm.
We need to fully move to a system of having all money issued without debt by the government, not a mere occasional policy flyover of the masses.
A switch first to an exogenous money footing (money-by-rule) is necessary for heli-money's effects to be planned, implemented and its effects clearly understood.
Actually, heli-money, as called, or 'public money' as the exogenous system is better defined, should become the complete replacement mechanism for money issuance, with banks doing all the lending.
The result would be that Rajan's concerns about
" (consumers)they might splurge again on assets and take on excessive debt," would become a non-money problem, merely an actual bank-credit-debt manifestation.
The money supply would not be changed.
The Money System Common

Policies in the U.S. throughout the late Greenspan era and the Bernanke Fed have been an exercise in unconventional monetary policy on a massive scale. It started with forcing the fed funds rate down to 1% and holding it there for "a considerable period" even though economic growth had begun to take off in the early 2000s. Then it was on to ZIRP, QE and now NIRP. As the authors point out, these policies can create similarly large spillover effects. both domestically and internationally, even as they have appeared to be relatively ineffective by post-war standards. In the U.S., Congress and the Presidency could reach a grand fiscal deal by rationalizing the tax code, authorizing additional hundreds of billions to the highway trust fund and rebuilding the military, as old weapons reach the end of their life cycles and would have to be replaced anyway. Ronald Reagan and Bill Clinton would have been able to accomplish such a deal because both did so with equally recalcitrant Congresses.

The United States has had a surfeit of neoliberal "structural reforms" - that have only served to accelerate economic inequality and wasteful consumption. To tackle climate change, damage to ecosystems, and resource depletion, the world has a whole needs dramatically less conventional economic growth, not more. And just as the world is reaching its economic limits to growth, so has monetary policy reached its limits. Time for governments to regain control of money and to start investing it in degrowth strategies, including population and resource degrowth toward sustainable levels.

The problem is more prosaic I believe than what is stated in this article, as good as it is in laying why action is not taken. Fundamentally, the capitalist system of creating and operating and economy, the best mankind has yet come up with, is all about "beggar thy neighbour" in order to increase capital. Until this process is reined in , the world economies are going to keep on with a boom/bust cycle.

This not to advocate a planned economy such as communism, but there has to be a greater effort on the part of governments everywhere to address the inequality existing throughout the world, which only undermines the possibility of spending by average individuals to keep an economy moving.

Mr. Rajan, Dr. Mishra, Reserve Bank India and any others who understand the difference between a liquidity crisis and an insolvency crisis and that it is the insolvency of the money system that MUST be corrected, and might care to understand why we need to have money without debt.
Thanks.
https://www.youtube.com/watch?v=gvLyiTNblSo

The problem here is that the creation of demand channel is not working to past models due to the need to repair the balance sheets from over extended credit. Business and individuals do not want to borrow to the same extent as before and that is probably good. That does not mean that demand cannot be created. It is spelled GOVERNMENT SPENDING, hopefully on useful things.

@JB
"New Rules must include money by rule" = Sectoral Debt Deployment to be aligned with Sovereign Economics Targets.
Because when "push comes to shove", The Fed cannot walk away - so the authority to design Debt Deployment is NECESSARY.

In reply, yes the government must step in as plain as the post-keynesian nose on its face, but how to pay for the well-spent deficits?
Some will say that pubic borrowing is the q&d , always been done, route. False, and unnecessary.
A sovereign nation that issues its own monies can fund the deficits with the gain from new money creation, colloquially called the seigniorage gain.
New Rules must include money by rule and not by capital markets, debts and instability.
We are a sovereign democracy and we have the power to issue the nation's money. Under such circumstances it would stand between foolish and insane for our country to borrow its money to use.
Issuing the money into circulation without debt.
Read Frederick Soddy.
Chaos may seem near but is hardly necessary.

Global Trade movement can get some course correction if 'direction of currency movement is tweaked someway'!Like 'BRICS" swap currency among themselves and RENMINBI and INR globalize someway. These small changes can add some color,at what intensity,time will tell. At the same time 'BRICS Bank' can help the 'course correction too'.

In addition,Indian Banking should be reformed and bring global banking practices to make new entrepreneurs feel comfortable to enter MSME and improve depth ,join global Supply Chain, improve export and import volume at par with 'others' (US-China-EU).

Several economies such as India have many sectors that have suppressed demand. For example, the electricity sector alone that currently accounts for $20 billion per year losses even while huge shortages occur. There is a paying consumer ready to accept this service. Increasing and catering to basic demand creates a more sustainable growth that asset price fluctuations created by debt. The latter, along with instant short term capital transfers between economies don't create any jobs or real value> instead they heighten problems for the real economy - we have sufficient evidence of huge fluctuations in bond yields and values of currencies within say 3 or 6 month cycles when nothing on the ground has changed that substantially. Central banks could well contemplate how to reign in opportunistic capital and influence their national govts on releasing real, latent demand as part of the 3 colour approach suggested.

Global economies are reeling under the overhang of huge quantitative easing that central banks undertook, primarily the US Fed to revive economies post the 2008 crisis. Coupled with China's slowdown this domino effect seems inextricable. The dizzying heights achieved by commodity exporting countries reached were the result of insatiable demand shown by China. Today the scenario has reversed with China's growth plateauing & declining resulting in much pain across continents. It is pertinent to note that major economies are taking it on the chin with India no exception though in a relatively better position due to domestic economy. Structural reform is unlikely in Europe as its very existence as a homogeneous entity is in doubt. The measly growth exacerbated by the migrant influx, aging population & welfare benefits outgo make for depressing economic conditions. Brexit has all the makings of creating mayhem in world markets. Japan has been in the throes of deflation for a while & the BoJ has set negative interest rates thereby indicating pain is making the BoJ anxious. The US seems to be crawling its way out but a change in leadership is bound to create ripples. South America might see pockets of hope with new leaderships in Argentina & Venezuela & Colombia finding peace after decades though Brazil is tottering & no immediate end in sight. Oil-rich Middle East has been engulfed in violence & depressed oil prices has resulted in economies taking an enormous hit. Amidst all the gloom & doom, India seems relatively calm though export driven sectors are bound to be hit. The biggest fear now is the scale & depth of Chinese slowdown & its effects on world economy. The Chinese central bank has assured of modest renminbi depreciation but further devaluation cannot be ruled out in order to secure their exports. This would have a cascading effect & force competitive devaluation by other Asian economies. The remedy, perhaps, lies in extinguishing debt overhang, particularly in bigger economies. One estimate puts private corporate debt in China at 160% of GDP, a worrisome proposition. Given the fact that negative interest rates are widely prevalent in Europe & Japan, inflation is least of the worries. One possible growth trigger would be an increase in oil demand resulting in a steady rise in oil prices. However, countries are now actively reducing fossil fuel usage due to environmental concerns. Tough times call for tough measures irrespective of political fallout. But does today's political class have it in them to execute such surgery?

Like color warning for terrorist threats, we can use them for "monetary" threats. All signs are flashing RED!

And terrorism globally is increasingly killing more people - so color schemes obviously do not work!

But since all central bankers have a "communication strategy" - instead of "dot plots" - or "whatever it takes" - maybe they should just the three colors suggested by Mr. Rajan, and fly a matching flag in front of their headquarters every morning!

The author is groping towards the truth, which is that you cannot have a truly Global economy, based solely on systems of national regulation. The World needs a new "Global Economic Community" capable of building, for the first time ever, a regulated single market across the G20 economies.

Only once this is done will we be able to tackle the most fundamental problems facing the Global economy. In the developed World more QE and looser monetary policy cannot be the answer. Our economies have been stalling, not due to lack of liquidity, but through lack of demand. We have to direct a greater share of wealth to working families and public spending. But this will be impossible without a Global tax agreement that ends the system of international tax havens, and sets new Global minimums to stop the "race to the bottom" in national taxation.

The justice of such policies will be obvious to voters. What we are yet to see is politicians who can communicate such a bold Global vision.

How would you ensure that not everybody tried to implement the new rules last? They would want to do that or it would look like a NEGATIVE for investors in the form of soft capital controls. Small positives for investors, rather, might look like -1- Credible trajectory for country's Labor Participation Ratio (unlike the US's) or Civilian Employment to Population, -2-Credible trajectory for country's Net Immigration to Population ratio, and -3- Credible trajectory for country's Imports.. Big positives for investors look like the country outperforming in terms of its Age Dependency Ratio (like the US). This is because a population averaging 20 years life expectancy (hypothetical) can't invest in its own stocks if the market (stocks or bonds) might fall by more than 40%. If the market recoups 2%pa they would only just nominally break even in 20 years but lose due to taxation (ex philanthropists) and inflation reductions to the values of stock returns. Japan stocks were down 100% since their top if you translate everything back to Swiss Francs. Monetary blockers or not, why should investors send capital to any country where the country's own investors can't risk a 40% decline in stocks and so won't even invest themselves. If you can fix this age dependency/stocks metric, you can sell that fact abroad and the capital will come.

You lost me at Jean-Claude Juncker, then Luxembourg’s prime minister, said at the height of the euro crisis, “We all know what to do; we just don't know how to get re-elected after we’ve done it!”

JCJ the one who has minister of Luxembourg was facilitating tax evasion...

And yes, monetary policy has spill overs, but so does regulation asymmetry and export based development policies pursued be countries like India.

So now you are complaining about countries trying to gain from external demand, when your country has been praying this mantra for ages, when what it should be doing is developing internal markets and internal demand, not fueling oligarchies built on cheap labor.

India's Exports to GDP ratio has been around 23%-24% range for a fairly long time now. Many export items are in people intensive sectors that generate huge employment and are fundamentally competitive. It is not a subsidised export basket as your comments seem to indicate. This contrasts with say, solar panel manufacture and or agricultural exports both of which are subsidized in many countries.

An extremely interesting article by Governor Rajan and one that had me checking on the net to follow up the progress of the Global Infrastructure Hub's agreements and MOUs, because monetary policy needs fiscal to work comprehensively. I got quite excited when I thought Germany's increase in spending was by 23 billion pounds a year to 2020, partly for infrastructure, instead of the actual about eight. I'm always hoping they will take some of their surplus and invest in projects on a big scale. Yes, there's a lot of debt in the world, but that of the Central banks is going to sit there. An individual country's debt is unlikely to be forgiven, but stands a good chance of being restructured and in the case of Greece, starting fairly soon. I suppose in a way there's already a feeling of working together economically. UK and US are not putting rates up but not going into negative territory either, sort of anchoring while others make their moves. The G20 summit in London 2009 was when the institution was said to have come of age. Is the Raghuram Ragan looking for the formation of a Global Economics Hub where advanced global economic policy is created and presented to the G20?

+1
Some Governors can and have interpreted their domain and targets to step beyond and permanently monetise - helicopter money made permanent is an alternative to debt based QE. Governors can stretch their domain even further by imposing Capital requirements that can create Sectoral credit injections by design. But the recommendations of the author to bring more global rules will be further hindrance - one glove does not fit all. Unless the G20 has achieved similar Income levels - utopian rules may work for utopia, not in the commons.

Well Steve, while I agree with you i also don't see any arm from monetary expansion.

Most people are blaming QE not realizing that its like blaming aspirin for the heart atacks. Aspirin helps those with heart conditions, but it doesn't solve the problem, and for sure its not responsible for the years of lack of exercise and morbid obesity.

We are hearing for some time the implications of unorthodox Monetary Policy. The first hand impact felt in August 2013 when Federal Reserve made an announcement Quantitative Easing gradually phased out. Well, it touched the fault lines and all the emerging economies currency plummeted. An exchange rate in many countries pegged with US Dollars or Central Banks intervenes depending upon the market conditions.
During the recent IMF meeting in India, the managing director was accommodating to unconventional monetary policies as long it fits into their country’s growth trajectory. It seems everyone wants to make their place hygiene but not having proper system in place to dispose the waste. Therefore, the wastage dumped in another place. Finally, this vicious circle pursues unchecked and unhindered. Therefore, the spillover effect is inevitable especially emerging markets.
In order to make really progress in the long-term growth has to come within each economies. Our fiscal consolidation should start within each nation by its own infrastructure development. The point of RBI governor making innumerable speeches is beyond my grasp as all central bankers meet intermittently. Even I remember Mr. Ben Bernanke mentioning that discussions take place during the bi-monthly BIS meetings of the Central Bankers in Switzerland.
The crux of the problem needs strong internal solution, as globally there are very few listeners.

He raises a point that many have been hinting since the 1997 Asian crises. However, its like the U.N. -- no country on earth is willing to give up their sovereignty. The idea of global governance may take a century or two before it really starts to take.

Ooops! I have been stupid. Now I see, what Rajan is effectively proposing, is that China can be marginalized by such an international agreement --of course, with some benefits for India... It's actually quite clever. Pushing China to appreciate its currency is possibly what can bring the western countries on this horse.

Would that do any good? It would slow down China even faster push oil and commodity prices further downwards, and increase the risk of a bubble burst in China. Lower commodity and energy prices and appreciation of the Renminbi would produce significant profits for some of the 1% behind multinationals in manufacturing and improve growth numbers for the west.

China will be forced to invest abroad, to avoid isolation or punitive tariffs from the agreement. That would improve demand in the west and reduce Chinese competitiveness, so that India and other cheap labor countries can have more opportunities in the outsourcing of manufacturing.

It could actually work for numbers in almost all economies. Well, the Chinese would lose their chance to bring more people out of poverty and share their growth with the rest of the world.

Monetary policy independence of Sovereigns provides authority along with responsibility to steer the respective Sovereign ships - otherwise the proposition imposes controls but not responsibility for economic growth. The best analogy was Greece when the authority was with The ECB whereas responsibility for steering the Sovereign Economic ship remained with Greece - causing the stalemate, haemorrhage and meltdown.

Global Capital that becomes mobile due domestically driven Monetary policies - need to be individually controlled at The point of entry by Sovereign Economies - so it produces results desired. The proposition seems to suggest controls at The point of exit - the fear that domestic policy emanate from a desire to 'inflict damages' to the others is far fetched, because domestic policy is driven by a Sovereign's domestic agenda.

A priority for Global Monetary goals that takes the capacity of Key Sovereigns to "export" their problems and inflict irresponsible damages - is perhaps creating The IMF Bitcoin. The United States alone has discharged this function for too long - with blockchain technology now in the realm of the art of the possible, this technological leap perhaps addresses the concern that the author seems to be trying to pin.

Very well said that ultimately nations must act on their sovereign well-being, and the first new rule for the monetary game ought to be to recognize that. And the second rule ought to be that if the present system caused the instability that threatens our institutions to the point where new institutional arrangements are being yet again proposed, then we need to put that system on the line. And that system is the debt-based money system
That is the system that has caused the debt-overhang, balance sheet recession and that is the system that needs to go. Slowly, carefully but with clear purpose of outcome, being national stability and prosperity.
Every nation that is responsible for the well being of its people by definition needs to be issuing its own currency and needs to be issuing its currency without debt.
All nations are thus moved toward stability, which should be the first goal.
Yes, it's time to change the money paradigm.
To public money.

Lets see... The main players are US, China, Eurozone, Japan, UK, Brazil, India. China is definitely out of such a game, with very strong ...opinion on its exchange rate. For the US it would sound like somebody else's problem, with growth expectations and improving employment, at least in numbers, unless ...election turnout falls off. For Eurozone it would be a big gamble, endangering multiple countries inside it eventually seeing its "single monetary policy" as a case of negative spillovers (though, it could also be seen as an exploration of alternatives). Also, Eurozone, Japan and UK are likely to see this as a reduction of their quite limited maneuver space.

The only possible advantage for G7 countries would be in the formation of another global institution, countering reproach of both central banks and IMF. But that would be problematic, including because of the IMF experience and because of side effects for G7. And, of course, the western countries did not become "advanced" economies by really fostering competition, but by saying they do. Moreover, Rajan is not proposing a global institution, but an international agreement.

For Rajan, it must be just an article, because I do not see the point in actually believing in regulating the current monetary system; its problems will not go away --at best, they will be evenly distributed among economies, i.e., mostly to their creators, the "advanced" economies. Reversely, if Rajan was thinking of gradually changing the monetary system, he would propose a global institution instead of an international agreement.

The only merit this article claims, is to give the impression that central bankers are thinking constructively, despite the result that their thoughts have no substance.

When you see The Governor of the Bank of India, writing about the need for structural reforms on the developed world, we should know that he's trying for something here.

It would be much easier if instead of complaining about monetary policies in other countries, he argued in favor of abandoning the export based development policy, and started focusing in India's internal market first.

Off course not agreeing with the oligarchies has a price, and probably Mr. Rajan title would be ex Governor...

OK, I must admit that there is a vaguely useful thing in Rajan's article. By mentioning almost all possible approaches to the monetary mayhem in "advanced" economies and its spillovers, he presents the two main alternatives, in a way that they seem equally problematic, which they, definitely, are not.

Rajan writes:
"While the remedy may be to write down debt to revive demand, it is uncertain whether write-downs are politically feasible or the resulting demand sustainable."

And then in the next paragraph:
"Politicians know that structural reforms – to increase competition, foster innovation, and drive institutional change – are the way to tackle structural impediments to growth. But they know that, while the pain from reform is immediate, gains are typically delayed and their beneficiaries uncertain."

As much as he tries to favor the latter, seen one after the other, it is clear that the former is a far better policy. The only problem is that the narrative right-wing politics that prevails, is fundamentally demolished by this clearly better policy.

Except it will never work, because you can't impose rules onto sovereign nations. Even if you could, your green-orange-red classification only works in an ivory tower - when the jobs of your factory workers depends on the classification then nobody will play fair. Pure fantasy economics.

Rajan has pertinently flagged off the need for international cooperation among monetary authorities in right earnest. The IMF Chief Lagarde too was on the same page when she told an Indian daily that "if there is one thing we have clearly identified in the last few years, it is the importance of spillovers and spill backs"--how monetary policy decided in one country can have repercussions in others in the form of undesirable concussion and upheaval. It is time the global statesmen put in place a capacious and more coherent safety net to safeguard vulnerable developing nations as risks remain elevated with increasing financial integration. G.Srinivasan, Journalist, New Delhi.

Boring twaddle. Rajan claims that "Why is it proving to be so hard to restore pre-Great Recession growth rates? The immediate answer is that the boom preceding the global financial crisis of 2008 left advanced economies with an overhang of growth-inhibiting debt." What debt: public or private??????????

Exactly. The debt is a round trip. The governments are de-facto lendors to banks. Banks invest in government bonds. The failure of QE is proof that the debt is inconsequential. The poor general demand is also proof of lack of substantial real debt.

Actually, central banks, whether taken individually or collectively, are just not equipped to deal with modern economic problems because they have accepted a division of labor with governments under which governments are responsible for providing direct supplements to national income, generally by running deficits, while central banks work indirectly through asset markets and price effects. But when governments find themselves unable to run deficits, that division of labor breaks down. Central banks could themselves provide the complement to their interest rate policies by lending directly to taxpayers; e.g., the the IRS withholding system, and effectively offset or amplify interest rate policy, while at the same time containing the effects to their own shores. But they have not bothered to acquire those powers.

So, please, stow all the hand-wringing exercises like this by Rajan, and get to work acquiring the powers needed by central banks to manage their economies within their individual borders. There will still be spill-overs, of course, but they will be nothing like we have today when the long overdue adjustment of even the world's largest economies can be frustrated by a combination of government paralysis at home and counter-moves by other parties within asset markets.

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